Definition
Market capitalization is the total market value of a company's issued shares, found by multiplying the share price by the number of shares outstanding. It measures the size of a company's equity as priced by the market, not its assets or revenue.
How it works
Market cap moves whenever the share price moves. Because the price is multiplied by every share in issue, a stock with a high price per share is not necessarily a large company: a HK$5 stock with many shares can be bigger than a HK$500 stock with few.
Investors group companies into large-, mid- and small-cap bands, but the cut-offs differ by market and data provider. Market cap is also the starting point for cap-weighted indexes. It ignores debt and cash, so it is not the same as enterprise value or the price needed to acquire the whole company.
Formula / convention
Market capitalization = Share price × Shares outstanding
Illustrative example
Illustration with fictional figures: Company A has 2.0 billion shares at HK$15.00, so its market cap is 2.0 billion × HK$15.00 = HK$30.0 billion. Company B has only 40 million shares at HK$500.00, a market cap of HK$20.0 billion, so B is smaller than A even though its share price is more than 33 times higher.
What to watch for
Market cap says nothing about debt, cash or profitability, and it is not the price a buyer would pay to acquire the whole company. Two companies with the same market cap can carry very different risks.